1. Antitrust in a changing political and economic world

Growing and protecting your business in the year ahead

Political changes and shifting economic dynamics globally will have important implications for antitrust policy and enforcement in the year ahead. The full implications for deal planning and antitrust risk will become more clear as the year progresses, but a number of important themes have emerged that businessesshould anticipate in their planning.

Political intervention in key sectors: the
role of antitrust authorities in making markets work for all stakeholders

Changes in government in some regions –
including the UK and US – are predicted to lead to a less interventionist
approach overall to market dynamics. Initial indications, however, suggest
that, in 2017, governments across all regions could take a more direct role in
antitrust enforcement and public interest review in certain sectors,
particularly those with signs of consumer dissatisfaction about price, service
levels or responsible corporate behaviour.

In response to increasing populism, Prime
Minister May and President-elect Trump have each highlighted the role
governments should play in controlling the behaviour of large business to
ensure markets are delivering fair outcomes for consumers and employees:

tapping into an apparent seam of dissatisfaction, Mrs May identified utility firms and retail banks as sectors subject to scrutiny if firms are suspected of abusing their roles; and

during his campaign, Mr Trump commented about media and high-tech industries, suggesting he wanted the AT&T/Time Warner transaction blocked. Early indications, however, from transition team members suggest that the overall direction of US enforcement could be more lenient towards mergers under his administration.

Expect more continuity than change with the next US administration – we should anticipate differences primarily on the marginal M&A cases, where we may see a lighter hand in enforcement.

Mary Lehner, Partner, Washington DC

At the EU level, recent comments from
Competition Commissioner Vestager illustrate how the concept of ‘fairness’ of
opportunity and outcome, with all stakeholders having equal opportunity, plays
an important role in EU competition policy. She is willing to intervene
directly in markets when prices are seen to be excessive, whilst recognising
that such intervention should be exercised carefully in order to avoid harming
innovation.

In 2017, growth, fairness and consumer
protection will remain high on the political agenda globally, and antitrust
authorities will come under increasing pressure to help deliver on these goals.

Despite the political rhetoric, most
governments continue to advocate the economic benefits of foreign investment
and free trade. Some sectors and investors, however, are likely to face
increased scrutiny when seeking clearance for investments in certain countries.

Most recently, the UK government
announced that it will publish proposals to reform its laws enabling government
to intervene in future foreign investments in UK critical infrastructure. Early
comments from Prime Minister May about defending sectors that are important to
employees, regions and the whole country suggest that the government may widen
the range of public interest factors that it may take into account in merger
assessments (currently confined to national security, media plurality and
financial stability), although a range of options (including a new foreign
investment regime) are possible.

In Germany, concerns about high-value
technology transferring overseas have led the government to consider extending
its powers to block acquisitions in key sectors. The government announced plans
to amend German foreign trade regulations in 2017 to allow for the prohibition of
foreign investment in certain key technologies such as IT enterprises. There
are also calls for stricter rules and more harmonisation in approach across EU
member states.

The German government is spearheading a push towards new EU legislation that would allow member states to prohibit acquisitions of EU companies by non-EU entities in certain circumstances. Any such developments at EU or national level will need to be monitored closely in 2017.

Frank Montag, Partner, Brussels

Foreign investors in the US should expect
close scrutiny by the Committee on Foreign Investment in the United States
(CFIUS) for acquisitions involving businesses or services even loosely related
to national security. China outbound investment into the US hit a record amount
in 2016, but some in Congress have made legislative efforts in recent years to
grant CFIUS the power to block transactions for reasons other than those
related strictly to national security concerns (which are themselves already
interpreted expansively). While these recent legislative efforts have failed to
date, the possibility of the CFIUS statute being expanded during a Trump
administration cannot be ruled out, particularly given the increasing focus on
reciprocity of treatment between countries with respect to trade-related
issues.

Compared to the antitrust regime, CFIUS
allows much greater scope for direct presidential influence on decision-making,
and the Committee is less accountable to public and judicial scrutiny given the
lack of transparency and appeal rights. So Mr Trump may use CFIUS to further
populist aims in transactions with even tenuous links to national security.

Governments will need to weigh the risks
of introducing less predictability and transparency for foreign investors,
given the importance of continued investment in infrastructure and innovation
for economic growth. They will need to consider carefully the possible impact
such action might have on cross-border M&A, inward investment and the
prospect of retaliatory action by other countries.

Chinese companies looking to invest overseas in 2017 will need to be particularly mindful of both the heightened scrutiny likely to be exercised by Chinese authorities over certain outbound investments from China and the increased risk for all companies of review by governments in Europe and the US of foreign investments in sensitive or strategic sectors.

Nicholas French, Partner, Beijing and London

Brexit: preparing for parallel antitrust
regimes in the EU and UK

As the EU and UK prepare to embark on
negotiations for the UK’s exit, the implications for EU and UK competition
enforcement range from little or no change (if the future UK/EU relationship is
modelled on existing EU or EEA arrangements) to separation of regimes with
dual-track processes, with or without co-operation arrangements that could
minimise the burden on business.

Full separation means business losing the
benefits of the EU’s one-stop shop for deals having effects in both the EU and
UK, as well as the UK being part of the closely co-ordinated system of
antitrust enforcement across the EU. This could increase costs and uncertainty
for businesses engaged in deals and trade in the EU and UK and companies will
need to be prepared to adapt their antitrust strategies, making sure they are
able to respond quickly to any changes in regulatory approach.

The potential separation of UK and EU competition regimes makes it more important than ever to stay close to agency thinking in both centres to ensure your antitrust strategies adapt to any change of direction in enforcement.

Simon Priddis, Partner, London

Resource-constrained agencies and impact
on case prioritisation: a focus on high-profile sectors and larger businesses

In a world of parallel regimes in the EU
and UK, one immediate effect will be pressure on resources, as the UK’s
Competition and Markets Authority (CMA) will be required to review a
significant number of additional large-scale mergers with, apparently, no
increase in budget.

In the US, if Mr Trump follows through on
his pledge to impose a hiring freeze on all federal agencies, it may give the
Federal Trade Commission (FTC) and Department of Justice (DOJ) staff fewer
resources to devote to marginal cases.

The combined effect of these changes is
likely to be a reprioritisation of investigative resources to higher profile
cases and non-discretionary areas of work, such as notified mergers, with
smaller scale and discretionary enforcement cases less likely to be pursued.

In a resource-constrained environment,
there may be a tendency for agencies to target high-profile companies in key
sectors with quick wins designed to satisfy political and consumer demand for
visible results. Longer term, however, politicians will scrutinise these outcomes
to ensure that any reprioritisation does not undermine their underlying focus
on improving consumer welfare and economic growth.

Looking ahead in 2017

In an era of political uncertainty and
changing regulatory environments,
it is crucial for businesses to:

stay close to agency thinking at a local level, being prepared to respond to policy changes whilst ensuring global antitrust strategies remain consistent and highly co-ordinated across all jurisdictions where the business is active;

ensure local antitrust compliance policies are able to adapt quickly to any changes in approach that could place certain commercial activities at greater risk of regulatory intervention than before; and

factor these changes into deal-planning and understanding and anticipating the political drivers that might hinder cross-border M&A or place certain deals under greater scrutiny for longer periods in particular regions.